Drop us a line...

FAQ: Wage and Hour

Vacation Policies

In California, can an employer limit how much vacation employees can carry over from year to year?

Although use it or lose it policies are illegal in California, the California Division of Labor Standards Enforcement (DLSE) does permit employers to place a cap on the amount of vacation employees may accrue. According to current DLSE guidance, a vacation accrual cap is acceptable so long as the time period involved for taking vacation is “reasonable.” Some years ago, the DLSE issued an Opinion Letter taking the position that “reasonable” meant a worker had to have at least nine months (or .75 of a year) after the accrual of vacation within which to take the vacation before a cap is effective; thus, a cap had to be set at no less than 1.75 times the employee’s annual vacation accrual. The Opinion Letter was subsequently withdrawn, but it does shed some light as to how the DLSE might evaluate the reasonableness of a vacation accrual cap.

Must a vacation accrual cap increase along with an employee's increased entitlement to vacation?

Yes. For example, assume that an employer has a policy that allows employees to accrue 10 vacation days in the first four years of employment and 20 days starting at five years of employment. Also assume that the employer has an accrual cap of 1.75 times the annual accrual. The maximum vacation accrual for employees during their first four years of employment would be 17.5 days of vacation (1.75 x 10 days); after five years of employment, when the employee becomes eligible for 20 days of vacation, the maximum accrual increases to 35 days (1.75 x 20 days).

Can an employer continue to impose a vacation accrual cap even when an employee is nearing the limit of the cap and requests vacation that management cannot approve due to staffing levels?

Yes. Even if the employee’s vacation accrual has reached the cap, and the employee’s request to schedule vacation is denied for appropriate reasons and consistent with the employer’s policies (staffing levels, business needs, etc.), the accrual cap need not be modified. Keep in mind, however, that it is important to make clear in the vacation policy the factors the company considers when granting and denying vacation requests.

Can an employer require employees to use vacation time if they have exhausted sick hours?

Generally, yes. An employer can deduct vacation time from an employee’s vacation accrual to cover absences due to illness after the employee has used all available sick hours, provided that the employer has proper policies in place notifying employees (whether exempt or nonexempt) of this procedure. Note, however, that there are some types of absences for which an employer cannot require employees to use vacation time, such as for California pregnancy disability leave.

In California, can an employer allow employees to use accrued vacation time only during certain times of the year?

Generally, yes. Employers have a right to control when vacation can be taken and the amount of vacation that may be taken at any particular time, provided such restrictions are spelled out in the employer’s vacation policy. Importantly, however, California employers cannot force employees to use vacation or forfeit it. “Use it or lose it” policies are not permissible in California.

In California, can an employer allow employees to use accrued vacation time only during certain times of the year?

Generally, yes. Employers have a right to control when vacation can be taken and the amount of vacation that may be taken at any particular time, provided such restrictions are spelled out in the employer’s vacation policy. Importantly, however, California employers cannot force employees to use vacation or forfeit it. “Use it or lose it” policies are not permissible in California.

California Final Paychecks

Can you review the California rules regarding the timing of final paychecks?

California Labor Code sections 203 et seq., set out strict rules for the timing of final paychecks when an employee is discharged (for any reason) or quits. Here is a summary of the rules and some guidelines for following those rules.

An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination and at the place of discharge. Most discharge decisions are made in advance, so employers should have the final paycheck in hand when giving the employee notice of his or her termination. In the event of an unforeseen or immediate discharge where a final paycheck is not prepared in advance, the employer should consider paying an additional number of days of wages representing the date the paycheck will be ready for the employee.

If an employee quits without giving prior notice, the employer has 72 hours to provide the employee’s final paycheck. Alternatively, at the employee’s request (and provided the employee designates a mailing address), the employer may mail/overnight the final paycheck to the employee as long as the date of mailing is within 72 hours of the notice of quitting. The 72-hour period is calculated as one contiguous 72-hour period that includes weekends and holidays. If the final pay is delivered by mail, it is advisable to use a means of delivery that provides tracking and confirmation of receipt.

If an employee gives at least 72 hours prior notice of his or her intent to quit and quits on the day given in the notice, the employee must be paid all of his or her wages, including accrued vacation, at the time of quitting. Thus, if on Thursday an employee gives notice that his last day of work will be the following Monday, he is entitled to receive his final wages by the end of his work shift on Monday.

An employer who fails to pay any wages due a terminated employee (discharge or quit) in the prescribed time frame may be assessed a “waiting time penalty.” The waiting time penalty is an amount equal to the employee’s daily rate of pay for each day the wages remain unpaid, up to a maximum of thirty (30) calendar days. An employee will not be awarded waiting time penalties, however, if he or she avoids or refuses to receive payment of the wages due.

Keep in mind that there are special rules for final paychecks for employees in certain industries, such as motion picture production, oil well drilling, and for seasonal employees in the curing, canning or drying of various fruit, fish or vegetables.

Can an employer mail a final paycheck when terminating an employee, including a telecommuter, by phone?

California law requires that the final paycheck be made available at the time and place of discharge. Thus, the employer must cut the check and have it ready for the employee to pick up. Mailing the check to the employee, if the employee requests it, is permissible. However, the employer should document that the paycheck was made available to the employee at the time of discharge. What about an employee who works in California for an out-of-area employer, such that it is impossible for the employee to pick up the paycheck? Unfortunately, this situation is not specifically addressed in the law. The safest practice is to obtain the employee’s written authorization to deliver the final paycheck overnight, such as by FedEx, and pay the employee through the date that he or she will receive the final paycheck. Alternatively, the employer could FedEx the final paycheck the night before the termination so that it is received on the date of termination.

Do the final paycheck timing rules still apply even if an employee requests to receive the final paycheck on the next regular payroll date?

Yes. An employer is not relieved of the deadline for providing final wages even if an employee requests, in writing or orally, to have the final paycheck issued on the next regular payroll date or at another time.

Can we honor an employee's written request to have her final paycheck direct deposited?

It depends. While direct deposits of wages to an employee’s bank, saving and loan, or credit union account are permissible with the employee’s written authorization, any such authorization is immediately terminated when an employee quits or is discharged. In any case, direct deposit of a final paycheck is permissible, pursuant to Labor Code section 213(d), if the employee has voluntarily provided written authorization for that specific deposit. It is important to keep in mind, however, that the rules regarding timing of final paycheck rules still apply in this situation, and employers are not relieved of compliance because they are directly depositing the final wages.

If we terminate a commissioned salesperson, when must we pay out the final commission?

If the commissions have been “earned” and are calculable on or before the date of termination, the employer must complete the necessary calculations and pay the commissions in the final paycheck — and in compliance with the final paycheck timing rules. It is not permissible for the employer to wait until the customary time for calculating the commissions of current employees, nor is it permissible to delay payment of earned commissions until the next regularly scheduled payday. On the other hand, if the commission has not yet been earned or is not calculable at the time of termination (such as when the employer is awaiting the completion of some legal condition precedent like receipt of the customer’s payment), the commission must be paid immediately after the condition occurs and the commission becomes ascertainable. It is advisable to review commission plans to ensure that they clearly define when a commission is “earned” to lessen the risk of claims for failing to properly pay out commissions on termination.

In California, can an employer make a deduction from an employee's final paycheck to recover advanced vacation time?

The practice of advancing vacation is risky because if an employee quits or is discharged before the advanced vacation is earned back, the DLSE takes the position that the advanced amount is like any other debt and the employer cannot use self help to recoup it by simply deducting the amount from the employee’s final paycheck. In this situation, the employer could ask the employee to repay the amount, or the employer might have to use other legal channels to recover the debt.

Do we need to pay out an unused "personal day" or "birthday" holiday upon an employee's separation, even if we have a separate vacation policy?

Generally, yes. In California, a “personal holiday” or “floating holiday” policy that allows employees to take paid days off for whatever purpose they wish must be treated the same as vacation, and accrued unused days must be paid out upon termination. Employers can also impose a cap on the number of personal or floating holidays that can accrue, in the same manner as it can establish such a cap on vacation accruals. Similarly, if the “birthday” holiday allows employees to take any day off (like vacation), then it too will be treated like a vacation day. Conversely, if, a “birthday” holiday policy requires employees to use the birthday holiday on the employee’s birthday (or by the following pay period), the DLSE does not consider it the same as vacation, and it need not be paid out at separation.

Can the cost of an unreturned uniform be deducted from an employee's final paycheck?

The California Industrial Welfare Commission (IWC) Wage Orders permit an employer to deduct from an employee’s final paycheck the cost of unreturned tools, equipment and uniforms, provided the employee has given prior written authorization for the deduction. No deduction is permitted for normal wear and tear.

Should we include severance pay in the final paycheck?

No, severance pay should be provided separate from final wages. This helps to distinguish between the amount that is being paid as final wages for work performed through the date of termination and the severance amount, thus making it easier for the employer to demonstrate that the final paycheck was timely provided.

Exempt Status

For 2010, what is the minimum salary requirement for exempt employees in California?

For 2010, the minimum salary that employees must earn to qualify for the managerial, administrative, or professional exemptions in California remains unchanged at $2,773.33 per month, or $33,280 per year. This minimum exempt salary is based on two times the current California minimum wage, which currently stands at $8.00 per hour. To qualify for the computer software professional exemption in 2010, employees must earn $37.94/hour or a salary of $79,050 for full time employment (or $6,587.50 monthly).

In determining whether the "duties test" is satisfied for exemption for a particular employee, does the employer have to analyze the individual employee's duties, or is it enough that the group of employees in similar jobs are performing exempt duties that meet the test?

An employee will not qualify as exempt merely because co-workers performing similar duties are properly classified as exempt, or based solely on a job title shared with exempt employees. Rather, exempt classification of a particular employee must be determined based upon an individualized assessment of that employee’s work duties and salary.

With respect to the California rule that an exempt employee must spend more than fifty percent of work time performing exempt duties, is the time measured on a daily, weekly, or monthly basis?

For the executive, administrative and professional exemptions, the time must be measured on a workweek basis. In particular, to qualify for these exemptions, the employee must spend more than 50 percent of his or her work time performing exempt duties. The California Wage Orders specify that “[t]he work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement.”

If a nonexempt employee temporarily covers an exempt employee's duties while the exempt employee is on a leave of absence, does the fact that a nonexempt employee was able to perform that job mean that the job really does not qualify as exempt?

No. The determination of exempt status focuses on the duties an employee performs. Thus, if an employee’s specific job duties meet the legal standards for exemption, it is irrelevant whether those duties are also sometimes performed by a non-exempt employee, such as during an exempt employee’s absence. Of course, if the non-exempt employee who is covering for an exempt employee is not “primarily engaged” in performing exempt duties and/or does not meet the salary basis test, then the non-exempt employee will remain non-exempt even during the time period when covering the exempt job.

Must an employer inform an employee who is classified as exempt as to the specific type of exemption that applies (e.g. administrative, executive, outside sales)?

There is no legal requirement to inform an employee about the specific type of exemption the employer is applying. It is a good practice, however, to indicate the applicable exemption in job descriptions, as well as to ensure that the job description reflects duties that are consistent with the exemption and the work the employee actually is performing. Furthermore, note that even if an employer initially classifies an employee under an incorrect classification, but the employee qualifies as exempt under another exemption, the employee can still be considered exempt.

What is the effect on exempt status if the employer has unpaid holidays on which the office is shut down? Similarly, may we reduce an exempt employee's pay if a holiday falls within the employee's introductory employment period?

Under California and federal law, an exempt employee who performs any work in a week must be paid that full week’s salary, except in specific circumstances (such as for personal days off). Thus, exempt status is destroyed if, during a work week, the employer deducts from the employee’s salary for a day off– including a company holiday — when the employee is ready and willing to work, which includes time during the “introductory period,” even if the company has a policy that holidays will not be paid during that period.

We have an exempt employee who took a half day off due to illness. Can we deduct this time from his pay?

No, the general rule is that deducting pay for an exempt employee’s partial-day absence will destroy the exemption. Note, however, that even when an employee’s salary may not be reduced for a partial-day absence, in some cases an employer may make partial-day deductions from an exempt employee’s accrued paid time off. Thus, for example, if an exempt employee works one hour and takes seven hours off for illness, and has two hours of available sick leave and two hours of accrued vacation, the employer must pay the full salary but may deduct two hours from the employee’s available sick leave and two hours from the accrued vacation (as long as the employer has such policies in place). For more examples, please see the November 23, 2009 Opinion Letter from the California Division of Labor Standards Enforcement.

If an employer deducts personal leave time for an exempt employee due to a partial day absence, must the employer pay additional salary for any additional hours worked another day by that exempt employee?

Generally, an exempt employee must receive his or her full salary for any week in which the employee performs any work, without regard to the number of days or hours worked. Thus, employers need not, and should not, pay an exempt employee additional wages solely because the exempt employee worked longer hours than usual on any particular day.

Can you reduce an exempt employee's salary and hours if the reductions are in connection with the California employment development department's work share program?

The DLSE addressed this situation in a recent opinion letter, concluding that a reduction in salary and hours for an exempt employee — even when in connection with the California Employment Development Department’s Work Share Program — strips the employee of the exempt status. In particular, the DLSE found that if an employer puts exempt employees on a work share program, whereby they are paid out of government funds for a percentage of what they would have made but for the reduction in hours imposed by the employer, those employees are no longer paid on a “salary basis” and no longer qualify for exemption. The opinion letter is online at http://www.dir.ca.gov/dlse/opinions/2002-03-12.pdf.

Meal and Rest Breaks

Are employers required to allow employees to leave the workplace during meal periods?

In California, an employer can require employees to remain on its premises during meal periods. However, if this occurs, the meal period must be paid because employees are denied time for their own purposes and in effect remain under the employer’s control (even if employees are relieved of all work duties during the meal break). Thus, in California, such time is considered “hours worked” and must be paid. Note that if employees are required to eat on the employer’s premises, a suitable place for that purpose must be designated. For most employers, “suitable” means a sheltered place with facilities available for securing, heating and consuming food and drink.

If a nonexempt employee's meal break is interrupted for a few minutes by a supervisor, does the employer have to pay for that time?

The California DLSE requires that meal periods be an uninterrupted 30 minutes. Thus, if a supervisor requires an employee to perform any work during a meal break, the DLSE would likely find that a meal break was not provided and that the employer must pay not only for the time worked but also the extra hour of premium pay for the missed break.

If non-exempt employees are required to attend a lunch meeting, are they entitled to a meal break following the meeting?

Yes. Non-exempt employees must be relieved of all work duties during their meal break. If they are required to attend a lunch meeting, even if food is provided, they are not considered to have been relieved of all duties. The employer must pay for the time spent in the meeting and must provide a meal break either before or after the meeting. If no meal break is provided, the employer must also pay a premium for the missed break, equal to one-hour’s pay at the employee’s regular rate of pay.

Is it permissible to have an automatic 30-minute deduction for meal breaks?

While there is no rule prohibiting employers from making an automatic deduction for meal breaks, the practice is risky for several reasons. First, if an employee regularly is leaving for lunch a few minutes late or returning a few minutes early, an automatic deduction might short the employee on pay for the extra time worked. Second, employers are required to keep records of the beginning and ending times of meal breaks, and an automatic deduction practice would not relieve the employer of this obligation. An employer that chooses to use an automatic deduction method should be certain to regularly check actual time records for meal breaks to ensure that the deduction is appropriate.

Does an employer have any liability with respect to a nonexempt employee who works 6.25 hour shifts and has signed a meal period waiver?

California Labor Code § 512 specifies that an employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal break, except that an employee who will work no more than six hours in a day may waive the meal period. An employee who works 6.25 hours is entitled to a meal period, even if the employee has signed a waiver. Therefore, the employer would be liable for an extra hour of pay as a premium for each missed meal period, as required by Labor Code § 226.7.

Regarding the labor code § 226.7 premium pay for a missed meal break, does this apply only if the employee was prevented from taking a lunch break, as opposed to the employee choosing to work through the lunch?

The premium pay for a missed break applies when the employer has failed to “provide” the employee with a meal or rest break. Currently, there is uncertainty in California as to what “provide” means — must the employer ensure employees take a break, or does the employer satisfy the law by making the lunch break available even if the employee chooses not to take the break? Until the law is sorted out, the safest practice is to require nonexempt employees to take meal breaks. Otherwise, it could come down to the employer’s word against the employee’s as to the real reason the employee did not take a lunch break. For example, the employee could argue that a supervisor asked him or her to work through lunch or made it impossible for employees to take their breaks by failing to provide adequate work coverage.

Do meal period requirements apply to exempt employees?

The DLSE does not enforce meal and rest period requirements with respect to employees who are properly classified as exempt from overtime.

What does California law require for rest breaks for non-exempt employees?

Generally, employees covered by the rest period provisions in California must be provided with a net 10-minute paid rest period for every four hours worked or major fraction thereof. To the extent practicable, the rest period should be in the middle of the work period. For each day on which a rest break is missed, the employer must pay the employee a premium for the missed break, equal to one hour of pay.

Is there a legal requirement to record rest breaks?

California does not require employers to record the start and end times of rest breaks. However, many employers do require employees to record their break times so that the employer has documentation to support that rest breaks were taken. Without such documentation, it is an employee’s word against the employer’s word, and administrative agencies and juries are generally more likely to side with employees.

Miscellaneous

Is it permissible to allow non-exempt employees to telecommute?

Employers can permit both exempt and non-exempt employees to telecommute, although there are special wage and hour risks that may arise when the telecommuter is non-exempt. For example, it can be difficult to ensure that an employee is taking required meal and rest breaks and to verify that all hours worked are being properly recorded. Thus, when telecommuters are non-exempt, employers are advised to pay close attention to wage and hour issues and make sure the employees understand they are required to take meal and rest breaks and provide the company with a record of all time worked. To help keep track of hours worked by telecommuting employees, many employers use computer or telephone systems that automatically generate an hours report, which can be compared to daily timesheets. Employers can also keep an eye on hours by requiring non-exempt telecommuters to report in by phone at the beginning and end of each work day and at breaks.

Do the cautions against permitting nonexempt employees to use blackberries after hours also apply to cell phones (that is, answering or making work-related calls after hours)?

When nonexempt employees use PDAs, laptops, cell phones or similar devices after hours to check work email or voicemail, make calls or send text messages, the time is compensable. To avoid liability, including for overtime, the best practice is not to issue such devices to nonexempt employees. On the other hand, if the employer does issue these devices to nonexempt employees, a policy should be in place prohibiting them from working after hours and imposing disciplinary consequences for violations of the policy. The employer also should have policies requiring nonexempt employees to record all time worked.

Must commissions be included in determining the regular rate for purposes of overtime compensation?

An employee’s regular rate of pay includes his or her base pay, as well as commissions and most bonuses. For each overtime hour worked, nonexempt employees must be paid 1.5 times (or 2 times, in some cases) the regular rate of pay.

Can an employer prorate a bonus for an employee who was on family and medical leave during the bonus performance period?

The new Family and Medical Leave Act (FMLA) regulations permit employers to deny or prorate bonuses that are based on the achievement of a specified goal, such as attendance or performance, if the employee fails to meet the bonus criteria because of a FMLA leave. Bonuses can be prorated or denied in this situation only if the employer would take the same action for employees on an equivalent leave status for a reason other than FMLA leave.

An employer’s right to deny or prorate a bonus does not permit the employer to otherwise penalize an employee for failing to meet the bonus criteria. For example, an employer cannot discharge or otherwise discipline an employee for failing to meet a production quota when the employee’s failure was due to FMLA leave.

We hire temps to cover for employees who are on leaves. Do we have to offer these temps the same bonuses we give to our regular employees?

There is no legal requirement to include temporary employees among employees entitled to receive a bonus. However, if the bonus provisions are drafted in a way that appears to promise temps bonus rights, temps could argue that they are contractually entitled to bonuses. Therefore, bonus plan terms should be reviewed to determine whether temps are covered by the provisions or not. And, when drafting bonus plans, employers should be careful to specify the types of employees that are and are not entitled to a bonus.

In California, can employers require their employees to pay for uniform cleaning and maintenance costs?

Generally, when a California employer requires its employees to wear uniforms, the employer must provide and maintain the uniform. Employees may be required to maintain employer-furnished uniforms only when the uniforms require minimal time for care (such as uniforms made of material requiring only washing and tumble or drip drying). If the uniform requires more care – such as dry cleaning, special laundering for heavy soil, or repairs – the employer must do it or must provide employees with a maintenance allowance or reimbursement for maintenance costs.

What issues should my company be aware of regarding paying out employees for alleged wage violations in return for a release agreement?

Securing a release of wage claims in California can be a complex process. Generally, California Labor Code section 206.5 voids waivers of an employee’s right to receive all wages due. Courts, however, have clarified that section 206.5 does not prohibit a release of claims for unpaid wages where: 1) there was a bona fide dispute over whether wages were owed; 2) the employer has paid all of the undisputed wages without regard to whether the employee signs a release; and 3) the employee receives something of value in exchange for releasing the right to sue for the additional (disputed) wages. Thus, before seeking a release of wage claims from an employee, an employer must pay wages that are clearly owed.

California's alternative workweek law, as amended in 2009 by A.B. 5, allows employees to move from one (approved) schedule option to another on a weekly basis. Is the employer required to notify employees that they can switch between schedule options?

California law permits employers to adopt an “alternative workweek schedule” (AWS) under which nonexempt employees work up to 10 hours a day without the payment of daily overtime (note that there are some differences for the health care industry). An AWS can be adopted only if two thirds of the employees affected vote in favor of the schedule in a secret ballot election. Among the many detailed procedures that must be followed to set up an AWS, the employer must give employees a written proposal that sets out the specific AWS or a menu of AWS options menu of work schedule options, from which each employee would be entitled to choose. The menu can include a regular eight-hour day option. The AWS law recently was amended to permit employees to move between schedule options from week to week, with the employer’s approval.

The best practice is to indicate in the proposal whether or not employees will be permitted to move between schedule options from week to week and whether employer approval will be required for such switching. Employees will be more likely to vote in favor of the AWS if they understand that they can switch between the different schedules as needed.

It is important to note that the procedures for setting up an AWS are detailed and must be followed strictly in order for the AWS to be valid.

Does the secret ballot requirement to adopt an alternative workweek schedule apply just to unionized employers?

Any employer — union or non-union — that wishes to adopt an AWS for California employees must, among other things, hold a secret ballot election that permits affected employees to vote on the AWS proposal. Note that this AWS election requirement is not related to secret ballot requirements for union organizing under federal labor laws.

Is the business mileage reimbursement rate published annually by the internal revenue service (IRS) an optional reimbursement rate, or is it mandatory for employers to use the irs rate?

The IRS business mileage reimbursement rate — which is 50 cents per mile in 2010 — is optional but strongly recommended because it is the rate that the IRS deems appropriate for mileage reimbursement. Using a higher or lower rate could create legal risks for the employer, depending on the circumstances. Note that when the IRS rate is used, there is a presumption that the amount is appropriate to cover the mileage costs. In fact, the DLSE presumes, absent evidence to the contrary, that an employer that pays the IRS rate to cover an employee’s driving expenses is in compliance with Labor Code section 2802, which requires employers to reimburse employees for business expenses.

If a California company has a policy of a $10 maximum for business meal reimbursement, but an employee spent $12 for a meal, is the company required to reimburse the full $12?

Yes. California Labor Code section 2802 requires employers to reimburse employees for all expenses incurred in performing duties or in direct consequence of those duties. Thus, if an employee spends $12 during a business lunch, the employer must reimburse the employee the full amount. The employer, however, may take necessary disciplinary action against the employee for violating the business meal policy, provided that the policy is clear that spending more than the maximum amount may result in disciplinary action.